Trump’s Drug Pricing Executive Order: Uncertainty for Pharma Leaders
The EO contains 13 measures to address high drug prices in the US, which we examine in this article. Which ones are going to impact drug manufacturers the most? And why might some of the measures not be as significant as we think? We conclude that the current proposals have a strong potential of downward pressure on US drug prices, and so drug manufacturers cannot be complacent. We wrap up with recommendations for strategic planners working in pharma and investment companies.
Trump’s Executive Order: Overview
In Table 1, I have summarised the actions in the Executive Order (EO) and ordered them by the time in which they are required to be completed (not the order by which they appear in the EO).
Table 1. Summary of the actions from the EO for Lowering Drug Prices
From the table we can see several themes showing how the Executive Branch is thinking about drug pricing:
- Strong commitment to significantly lowering drug prices: aiming for better performance than the Biden administration
- Systems thinking approach: the EO looks at multiple drivers and levers affecting drug prices in the system i.e., not only direct negotiation
- Ongoing commitment to the Medicare Drug Price Negotiation Program (MDPNP): the Executive is focused on keeping this policy in place (with modifications)
- Solutions focused on government and state programs: e.g., Medicare, Medicaid and less so on commercial plans
- Commitment to pharma innovation: this is likely to limit the degree to which prices will be cut
- A return to previous policy ideas from Donald Trump’s first Presidency: e.g., pricing of insulin and epinephrine and pricing models. We note that the Executive has been more assertive in implementing new policy than the previous Trump administration and so it is possible that these policies will be implemented with greater urgency
Two other important points worth highlighting. Firstly, there are some inconsistencies in the proposed approach:
- Eliminating the ‘pill penalty’: looks to extend the period in which small molecules are subject to Medicare Price Negotiations. As we will see later, this is likely to maintain high prices for longer for certain drugs
- Facilitate importing more drugs to lower overall costs to US citizens (v): this is contrary to proposed tariff policy, particularly as the expectation is that Canada will be the country primarily exporting the drugs
At this stage, it is not clear on how these inconsistencies will be reconciled.
Secondly, these measures will only start to take effect over the medium-term. The short-term impact of this Executive Order is likely to be low as most measures focus on developing policy recommendations rather than implementation (probably because the Executive Branch will need to work with Congress to implement pricing reforms).
What are the key EO measures to watch out for?
Develop and test payment models, even for drugs outside of the Medicare Drug Price Negotiation Program (xii):
This is potentially the largest impact item out of all the sections of the EO as it covers all Medicare drugs, not just those up for Medicare price negotiations. It does not specify what models would be investigated here, however in my view the two leading candidates are likely to be:
- International Price Referencing: In the previous Trump presidency this policy was introduced through an EO [4] but ultimately was stopped by CMS after a number of legal challenges [5]. It goes without saying that the use of an international reference pricing policy would be a substantial departure from current policy and face legal challenges again. Furthermore, a host of implementation issues would need to be thought through e.g., what if the drug launches first in the US? What if drug manufacturers fail to increase prices in ex-US countries? Despite these issues, there appears to be momentum again in exploring this model [6].
- Value-based pricing: The key here is the phrasing used in the EO: “improve the ability of the Medicare program to obtain better value”. This could be interpreted to mean a form of value-based assessment to determine pricing, or in other words a form of Health Technology Assessment. Traditionally the US has been strongly opposed to HTA, with the role of ICER softly filling the gap in the market.
Out of the two potential policies here, the second is likely to be the more palatable for pharma as this establishes a forum for ‘value-based’ negotiations. International reference pricing by contrast significantly restricts options to negotiate.
2028 Medicare Price Negotiations (i):
The President has expressed that he would like to “eclipse the 22% savings” of the previous administration, suggesting that it is expecting Medicare to negotiate hard with pharma companies.
Also included however, is a statement saying that negative impacts must be minimised on US innovation, which would limit how aggressively they can act. Quite how this balance will be struck is unclear as prior to the introduction of the MDPNP, pharma companies warned that cuts to R&D would be made should price reductions be enforced.
Modify the MDPNP to eliminate the ‘pill penalty’ (xiii)
The EO states:
The Secretary shall work with the Congress to modify the Medicare Drug Price Negotiation Program to align the treatment of small molecule prescription drugs with that of biological products, ending the distortion that undermines relative investment in small molecule prescription drugs, coupled with other reforms to prevent any increase in overall costs to Medicare and its beneficiaries.
Let’s unpack this. Firstly, the Executive will work with Congress most likely to help pass the proposed bill [7] that will equate the periods of time at which negotiations for Medicare prices will take place for both biologics and small molecule drugs. This would result in an extension of the small molecule ‘free price’ period from 7 to 11 years. The impact is clear: higher prices will be maintained for an extra four years under this proposal.
However, the EO also states that other reforms must be taken alongside this to ensure no overall increase in costs. To make up for this, as mentioned above, greater price reductions would need to be made elsewhere.
The final point to consider here, is the glaring omission that the proposed bill does not address the difference in FDA marketing exclusivity at approval: 5 years for small molecules and 12 years for biologics. This remains untouched. The original motive for this difference was to account for the higher risks and complexity of developing biologic medicines relative to small molecules. Arguably, if the Executive is intent on removing "distortionary incentives", then this should also be reviewed.
What other actions from the EO should we keep an eye on?
Speeding up approvals of biosimilars and generics (viii):
This is likely to help stimulate competition, but ultimately will not have much effect unless contracting and rebating policies used by health plans and PBMs changes. At present, originators can offer large rebates for preferred formulary status relative to new biosimilars/generics which effectively limits the entry of new players into the market, preventing strong price competition. Additionally, with recent reductions in headcount at the FDA due to efficiency drives, FDA may not have the capacity to speed up the number of approvals.
Promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain (iii) + Improve transparency into the compensation received by PBMs (x):
The middlemen of the pharmaceutical supply chain, especially PBMs, are now under intense scrutiny. We can see signs of this in recent announcements of the PBM lobbying group, Pharmaceutical Care Management Association (PCMA), that aim to shift blame for high prices onto pharma companies [8]. PBMs have long been caught in the crossfire for playing a role in sustaining high drug prices, by pocketing shares of negotiated rebates with pharma companies and not lowering prices directly for beneficiaries.
Reduce anti-competitive behaviour from pharmaceutical manufacturers (xi):
Here it is hard to figure out exactly what is being targeted as no specific area of the market is identified. Areas which have recently attracted media attention could become targets such as the agreements that originator companies strike with biosimilar and generic manufacturers to delay entry into the market. Similarly, practices to build ‘patent walls’ prolonging exclusivity could also be reviewed.
There are of course more policy actions within the EO that could significantly affect drug manufacturers in different ways. I recommend working through these with your teams to assess what specific impact they may have on your business.
Conclusion: Prepare and plan well
Whilst there is uncertainty in the current EO, the message is clear that the Executive wants to significantly bring down drug costs and could impose radical pricing changes. As such, drug makers must not be complacent as these changes could substantially affect drug and company value, especially for companies that are highly exposed to the US market. With the prospect of pharmaceutical tariffs also likely, strategic and financial planning will be particularly tough.
Key recommendations:
- Scenario plan the introduction of different pricing policies; prioritise those which have greatest impact on your portfolio
- Work through the full list of policy actions in the EO, check all impacts on your business
- Monitor the evolving policy space as it is likely to move fast
- Pay close attention to the dates at which the actions will need to be completed to inform your own planning
- Work with lobby groups and policy makers and respond to policy consultations
Contact
If you are interested in discussing any of the issues above, please contact me through my email address dniven@nivenbiopharma.com. Feel free to also visit my website at www.nivenbiopharma.com for more information.
Sources:
- Tariffs on Pharmaceuticals: Are Drug Prices Set to Rise, Doug Niven, April 25 https://start-utility.blogspot.com/2025/04/tariffs-on-pharmaceuticals-are-drug.html
- Lowering Drug Prices by Once Again Putting Americans First, The White House, April 2025
- Fact Sheet: President Donald J. Trump Announces Actions to Lower Prescription Drug Prices, The White House, April 2025
- Lowering Drug Prices by Putting America First, Executive Order, Federal Register, Sep 2020
- CMS pulls Trump-era Most Favored Nation drug price model, Jan 2022, Fierce Healthcare
- Trump Administration May Resurrect Most Favored Nation Model To Lower Drug Prices, Forbes, April 2025
- Murphy Introduces Legislation to Eliminate IRA "Pill Penalty" and Improve Small Molecule Drug Innovation, Press Release, Feb 25, Congressman Greg Murphy
- Pharmaceutical Care Management Association website www. pcmanet.org
